Option Investor
Newsletter

Daily Newsletter, Sunday, 9/20/2015

Table of Contents

  1. Leaps Trader Commentary
  2. Portfolio
  3. New Plays
  4. Play Updates
  5. Watch

Leaps Trader Commentary

China's Weakness Feeds Fed Concern

by James Brown

Click here to email James Brown

The hysteria over a potential rate hike by the Federal Reserve is over - at least for now. The bad news is that the will-they-or-won't-they (raise rates) debate will continue, likely into 2016. Trading volume was light the three days heading into Thursday's FOMC announcement. Most market participants were on the sidelines waiting for the verdict. The result was no hike by the Fed. As expected the post-announcement Thursday afternoon market was volatile. The widespread selling on Friday could be a case of sell-first, ask questions later, as investors digested the implications of the Fed's decision.

Friday was also a quadruple-witching option and futures expiration. The combination of quad-witching and the post-FOMC session generated a lot of volume. For the week the big cap Dow Industrials and S&P 500 indices posted minor losses while the NASDAQ composite and small cap Russell 2000 indices eked out very minor gains. Banks were the biggest loser for the week with a -2.7% decline. Biotechs were some of the better performers with the group up +1.0%.

The U.S. dollar saw volatile trading but closed nearly unchanged for the week. That didn't stop big gains in precious metals. Gold rallied +2.8% while silver rallied +4.0% by Friday's closing bell. Crude oil was up big on Wednesday with a +5.8% pop as traders reacted to a big decline in U.S. oil inventories. Unfortunately for oil bulls the rally reversed. Crude fell -4.7% on Friday to close at $44.68 a barrel. Meanwhile the bond market bounced that that drove yields on the 10-year note to 2.13%.

*Federal Reserve Decision*

Last weekend we discussed how Wall Street was mixed on the outcome of the Fed's September meeting. Fed Funds Futures, where investors were betting real money on the outcome, only indicated a 28% chance of a rate hike in September. Yet polling and surveys among analysts suggested the outcome was closer to 50:50. As late as Thursday morning the most recent poll had 49% expecting the Fed to raise rates.

If you haven't heard by now the Federal Reserve did not raise rates at their September meeting. The Fed's decision to not raise rates has fanned the flames of uncertainty on Wall Street. It's has also refueled worries over the slowing global economy. The Fed noted that the U.S. is still growing and labor market conditions have improved. However, they are concerned about the slowdown in China and emerging markets. Overseas concerns were strong enough to postpone a rate increase.

Federal Reserve Chairman Janet Yellen tried to suggest that they could still raise at the October meeting but her words seemed to fall on deaf ears. The market's focus is now turning toward the December FOMC meeting as the next potential for a rate hike or early 2016. The International Monetary Fund (IMF) and the World Bank should be happy as they both pleaded with the Fed to postpone their next rate hike into 2016.

Chairman Yellen reiterated her prior comments that the market should be focused on the trajectory or momentum of rate hikes (i.e. very slow) and not the timing of the first rate hike of the cycle. What the Fed really wants to see is inflation headed toward their 2% target. Right now we are not even close. The latest reading on inflation was about 0.2%.

The Fed released their anonymous dot plot diagram on Thursday that shows 13 of the 17 members still expect the Fed to raise rates in 2015. That only leaves the October or December meetings. Since nothing is likely to change in the next four weeks the October meeting seems an unlikely spot to raise rates. Longer-term the committee did say they expect rates to normalize by 2018.

Chart of the Fed's Interest Rate Policy

10 economic charts:
link

People do not like to talk about the specter haunting the Fed and that's a Japan-style deflationary limbo. The Bank of Japan tried near-zero interest rates years ago. The result was their economy sank into a deflationary vortex that they are still trying to escape 20 years later.

Economic Data

It was a busy week for economic data. Housing starts fell -3.0% in August to an annual pace of 1.16 million. That's down from a seven-year high in July of 1.2 million. Housing permits improved from an annual pace of 1.13 million in July to 1.17 million in August. The NAHB housing market index, which is a confidence survey among homebuilders, rose from 61 to 62, which is a multi-year high.

Chart of the NAHB Housing Market Index

10 economic charts: link

The Consumer Price Index (CPI) fell -0.1% in August after a +0.1% gain in July. The August decline was fueled by a -2.0% drop in energy prices. Excluding food and energy costs the core-CPI was up +0.1% for the second month in a row. Meanwhile retail sales came in below expectations at +0.2% in August.

The latest regional Fed surveys and industrial production numbers were disappointing. U.S. industrial production dipped -0.4% in August. That was worse than the -0.2% estimate. The New York Empire State manufacturing survey did see a small improvement from -14.9 to -14.7 but analysts were expecting a jump to -5. The Philadelphia Fed business outlook survey fell from +8.3 in August to -6.0 in September. Economists had been expecting a minor dip to +6.5. This was a very sharp decline and the worst reading since February 2013.

Overseas Economic Data

Disappointing industrial production numbers from China and Japan last Monday helped generate a cautious tone for the market. China said their industrial production in August inched higher from +6.0% to +6.1% but analysts were expecting +6.4%. Japan's industrial production for July was -0.8% versus expectations for -0.6%.

Chart of Chinese Industrial Production

10 economic charts: link

Housing prices in China rose +0.3% in August. It was the third month in a row they have risen. China also reported a +10.8% jump in retail sales, which was the largest one-month improvement since December. Meanwhile Japan reported that their exports declined for the second month in a row. The Bank of Japan left their interest rate unchanged at 0.1%.

Speaking of central bank moves the Swiss National Bank left their interest rates policy unchanged at negative 0.75%. The European Central Bank's chief economist told a Swiss newspaper that the ECB was ready to boost their one trillion euro QE program if they need to.

The Eurozone reported their Industrial Production for July came in better than expected at +0.6%. That's an improvement from -0.3% in June. The region's CPI for August was flat (0.0%), which was better than expected (-0.6%). Unfortunately the Eurozone ZEW economic sentiment survey fell from 47.6 to 33.3, which was significantly below expectations.

Greek Elections

You might find it hard to believe but Alexis Tsipras is once again the Greek Prime Minister. On Sunday (Sep. 20th) the country held their fifth election in six years (and their third in the last eight months). Here's a bit from TheGuardian.com, "After seven months of turmoil, broken promises, a referendum, a capitulation in Brussels, and a split that saw one-third of his MPs quit, he's heading back to the prime minister's mansion with a similar mandate to the one in January."

Here's a bit more on the Greek vote from the BBC website, "With 60% of votes counted, Syriza is projected to be just short of a majority but the Independent Greeks have agreed to join a coalition. The latest figures give Syriza 35% of the vote, compared with New Democracy's 28%... The snap election was called after Syriza lost its majority in August. This followed the signing of an unpopular new financial bailout deal with international creditors. Turnout in this poll was just over 55%, down from 63% in January and low by Greek standards."

I'm not sure this has any impact on the market on Monday but if it does I suspect it is market negative. European leaders didn't like working with Tsipras the first time. That relationship is unlikely to improve now that he claims he has a new mandate.




Major Indices:

The big cap S&P 500's reversal from Thursday afternoon and widespread decline on Friday left it with a -0.15% loss for the week. It is down -4.9% for the year. We expected a volatile afternoon on Thursday. Unfortunately the move looks like a failed breakout past resistance near the 2,000 level. Friday's drop has broken the short-term up trend of lower highs, which is bearish.

There is a lot of congestion in the 1,900-2,000 region so further declines are not guaranteed but I suspect the path of least resistance is down. The August lows near 1,865 could act like a magnet (and hopefully support).

Intraday chart of the S&P 500 index:

Daily chart of the S&P 500 index:

The NASDAQ Composite fared a little bit better with a +0.1% gain for the week. This index is still up +1.9% for the year. Unfortunately last week's action looks bearish. The NASDAQ's rally reversed at technical resistance on the simple 50-dma and near its trend of lower highs. I suspect that any further follow through lower probably pushes the NASDAQ into the 4,600-4,700 region.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index actually had the best performance among the major indices with a +0.48% gain. The $RUT also saw its Thursday afternoon rally fail beneath the 50-dma. Yet the sell-off on Friday did not break the bullish trend of higher lows but that doesn't mean it won't break on Monday. The path of least resistance still looks lower. A double bottom near round-number support at 1,100, near the August low, would look like a much more attractive bullish entry point for traders. Year to date the $RUT is down -3.4%.

chart of the Russell 2000 index



Economic Data & Event Calendar

The pace of economic data slows down this week but there will still be plenty of headlines. U.S. durable goods orders are expected to fall after a three-month rise. On Friday will be the final look at consumer sentiment for September which will likely dip from August's 91.9. We'll also get the another estimate on U.S. Q2 GDP growth. Last time an adjustment in inventory data pushed Q2 GDP growth up to +3.7%. Analysts are not expecting any change. Currently the Atlanta Fed is forecasting Q3 GDP to dip to +1.5% growth.

There will be a lot of important people speaking this week. A handful of European Central Bank members will be speaking this week and you never know if they might say something market moving. The one to watch will be ECB President Draghi on Wednesday. His counterpart, Fed Chairman Yellen, will speak on Thursday. Additional Federal Reserve Presidents speaking this week include Atlanta's Dennis Lockhart and St. Louis' James Bullard.

Chinese President Xi Jinping will spent most of the week visiting the United States. He arrives on Tuesday and will meet with President Obama on Friday. Jinping will address the U.N. at their annual meeting next weekend. Catholic Pope Francis precedes him and will address the U.N. on Friday.

There will also be several central banks updating their interest rate policy. None of them are likely to be market moving. Banco de Mexico will likely leave rates unchanged at a record low of 3%. Norway will probably leave rates unchanged at 1%. Additional central banks meeting this week include Columbia, the Czech Republic, Israel, and the Philippines.

- Monday, September 21 -
Existing Home Sales

- Tuesday, September 22 -
China's manufacturing PMI

- Wednesday, September 23 -
Eurozone's manufacturing PMI
ECB President Mario Draghi speaks in Brussels

- Thursday, September 24 -
Durable Goods Orders
Fed Chairman Yellen speaks in Massachusetts
U.S. new home sales

- Friday, September 25 -
Q2 GDP estimate
University of Michigan Consumer Sentiment

Additional dates to be aware of:

Oct. 2nd - Nonfarm payrolls
Oct. 28th - FOMC meeting
Nov. 26th - Thanksgiving holiday (markets closed)
Dec. 16th - FOMC meeting, new forecast Dec. 16th - Fed Chairman Yellen's press conference
Dec. 24th - Christmas Eve (market closes early)
Dec. 25th - Christmas (market closed)

Looking Ahead:

Q3 Earnings Season

There are only ten days left in the third quarter. You know what that means, right? Q3 earnings season is just around the corner. Right now expectations are falling. Over 90 S&P 500 companies have already lowered their Q3 guidance. The biggest culprit is the energy sector. Earnings among energy companies is expected to plunge -65% thanks to the decline in crude oil. Material-sector companies are also expected to see a significant drop of about -10% in profits. Potentially countering these declines are positive earnings forecasts in the healthcare, financials, and consumer discretionary companies.

Overall expectations are negative. Barclays just cut their 2015 earnings forecast for the S&P 500 to zero, as in no profit growth for the whole year. Barclays believes that the strength of the U.S. dollar combined with a slowdown in emerging markets will erase any profit growth for the year. This move follows a similar downgrade by Goldman Sachs several weeks ago. Alcoa (AA) kicks off earnings season on October 8th.

September's Poor Performance

As you know September is historically the worst month of the year for stocks. If you drill down and look closely at September's pattern the second half of the month is the worst. According to the Stock Trader's Almanac the week ahead has only posted a gain five times in the last 27 years. Ryan Detrick, a chartered market technician, did some research and noted that since 1950 the week ahead is normally the worst week of the year. link. According to Detrick the next three weeks tend to be the worst time period for stocks all year long.

Considering the market's reaction to the Fed's decision and where we are on the calendar I would be cautious. Get out your shopping list and identify which stocks you'd like to buy on a pullback. You might get your chance in the next three weeks.

~ James





Portfolio

Portfolio Update

by James Brown

Click here to email James Brown


Current Portfolio


Portfolio Comments:

It was a bit of a disappointing week for stocks. The pre-FOMC meeting rally was erased with an intraday reversal on Thursday and a widespread decline on Friday.

LGF has joined V on the active play list.

Disclaimer: At any given time the author may have positions in any or all of any companies mentioned in the Leaps Newsletter.

--Position Summary Table--
Table lists Directional CALL or PUT/LEAPS only.
Insurance puts, if applicable, are not shown.

Red symbol/name represents a play or option position exited or closed this week.




New Plays

Stocks Retreat On Fed Worries

by James Brown

Click here to email James Brown


- New Trades -


Editor's Note:

(September 20, 2015)

Investors seem disappointed that the Federal Reserve did not raise rates on Thursday. If the Fed is worried so much about a slowdown in China and emerging markets then maybe investors should be too. There are pundits on the other side of this idea suggesting that we should be happy with the market's reaction because it would have been worse if the Fed had raised rates.

One thing most seem to agree on is that the Fed's decision to wait has generated a lot more uncertainty on when the Fed will actually take the plunge and raise rates. Unfortunately there is nothing more the market hates worse than uncertainty.

In tonight's market commentary I shared how the calendar is not kind to stocks in late September. Historically the next three weeks tend to be the worst performing weeks of the year. Investors should prepare for another market pullback. If the market does decline then we want to use it to our advantage. Tonight I have added three new buy-the-dip candidates to the watch list (CRM, RCL, and SBUX).

Last week we saw LGF graduate from our watch list to our active play list.

No radar screen tonight. Prepare for a pullback. Hopefully the August lows will hold as support.



Play Updates

Making The Jump

by James Brown

Click here to email James Brown

Editor's Note:

Our current LEAPStrader play list remains very lean after the market's extreme volatility back in August but this past week we added LGF after it graduated from the watch list.

In tonight's market commentary I noted that the next three weeks tend to be the worst for stocks. Odds of a pullback are elevated. We need to focus on buy-the-dip entry strategies.

Use the LEAPStrader watch list for new play ideas.


Closed Plays



None. No closed plays this week.




Play Updates


Lions Gate Entertainment - LGF - close: $39.68

Comments:
09/20/15: Our new watch list candidate LGF has graduated to an active play. The plan was for LGF to breakout to new highs. We wanted to see shares close in the $40.00-41.00 range and buy calls the next morning. The market surged on Thursday afternoon and then reversed but LGF managed to hold on to a good chunk of its gains. The stock closed at $40.06. Our trade opened on Friday morning with LGF's gap down at $39.61.

I would still consider new bullish positions but wait for LGF to close above $40.00 before buying calls.

FYI: Last week LGF raised their quarterly dividend by 28.5% from 7 cents to 9 cents per share. Investors will also want to note that LGF is expected to report earnings in early November.

Trade Description: September 8, 2015:
If at first you don't succeed, try, try, try again. We tried trading LGF recently but we were shaken out thanks to the market's late August crash and LGF's spike to 2015 lows. Naturally the stock has recovered and is on the verge of a major breakout past resistance near $39-40.

What follows is an updated version of my original play description:

Have you ever wanted to trade the hype on a particular movie release? We might be able to do just that with LGF.

LGF is in the services sector. According to the company, "Lionsgate is a premier next generation global content leader with a strong and diversified presence in motion picture production and distribution, television programming and syndication, home entertainment, digital distribution, new channel platforms, video games and international distribution and sales. Lionsgate currently has more than 30 television shows on over 20 different networks spanning its primetime production, distribution and syndication businesses, including such critically-acclaimed hits as the multiple Emmy Award-winning Mad Men and Nurse Jackie, the broadcast network series Nashville, the syndication success The Wendy Williams Show, the hit series Orange is the New Black, the critically-acclaimed drama Manhattan and the breakout series The Royals."

What that company description neglects to mention is the Hunger Games franchise. LGF makes the movies for the extremely popular franchise and the fourth and final movie is due to hit the U.S. market in November this year. Shares of LGF will likely rally into November as hype builds for the "Hunger Games: Mockingjay - Part 2" movie.

LGF is also considered a takeover target. Everyone is scrambling for quality TV programming and LGF has the awards to prove it can deliver. Potential suitors include any of the major media companies. There are rumors that LGF could be a target by someone like AAPL who wants to jump into media creation or possibly NFLX, who just lost LGF's content when they failed to renew their contract with EPIX.

I am suggesting we wait for LGF to close in the $40.00-41.00 range. If shares close in this range then buy calls the next morning. No initial stop loss.

- Suggested Positions -
SEP 18, 2015 - entry price on LGF @ 39.61, option @ 4.50
symbol: LGF170120C45 2017 JAN $45 call - current bid/ask $3.10/4.80

09/18/15 Trade begins. LGF opens at $39.61
09/17/15 LGF closed at $40.06, inside our $40-41 entry range
Option Format: symbol-year-month-day-call-strike

Chart

Current Target: To Be Determined
Current Stop loss: n/a
Play Entered on: 09/18/15
Originally listed on the Watch List: 09/08/15


Visa Inc. - V - close: 69.79

Comments:
09/20/15: Financial stocks were underperformers last week as the market reacted to the Fed's decision to delay raising rates. V saw its rally fail near short-term resistance in the $72 area and its simple 50-dma. If Friday's weakness continues we could see V dip toward short-term support near $68.00 and its simple 200-dma.

I am still suggesting investors wait for a new close above $72.00 or more conservative investors can wait for a close above $72.75 before considering new bullish positions.

Trade Description: August 9, 2015:
The world is moving closer and closer to a cash-less society. Big payment processing companies like Visa and MasterCard will benefit from this transition.

According to the company, "Visa Inc. (NYSE:V) is a global payments technology company that connects consumers, businesses, financial institutions, and governments in more than 200 countries and territories to fast, secure and reliable electronic payments. We operate one of the world's most advanced processing networks - VisaNet - that is capable of handling more than 56,000 transaction messages a second, with fraud protection for consumers and assured payment for merchants. Visa is not a bank and does not issue cards, extend credit or set rates and fees for consumers. Visa's innovations, however, enable its financial institution customers to offer consumers more choices: pay now with debit, pay ahead of time with prepaid or pay later with credit products."

It's important to note that V does not extend credit to consumers. There's no credit risk for bad loans here. V makes money on transactions. That business is booming.

On July 23rd V report its Q3 results, which were $0.74 per share. That beat estimates by 16 cents. Revenues were also higher than expected at $3.52 billion, up +11.5%. Management offered strong guidance and upped their EPS estimates into the mid teen percentage range. Long-term V is expected to grow earnings at almost 15%.

One of the big stories to come out of V's recent earnings report was news of a merger brewing. Visa is talking to former subsidiary Visa Europe. Estimates suggest the price target could be in the $15-20 billion range. Wall Street is positive on the deal and Visa expects it would add to earnings in fiscal 2017.

Another reason to be bullish on Visa is the fact that China recently opened its market to foreign companies to participate in clearing domestic bank card transactions. Previously only Chinese companies could do this. Now giants like V and MasterCard can compete in a market valued at more than $6.8 trillion. Considering V's expertise in this field we should expect them to grab a healthy chunk of the market.

Shares of V recently surged to new all-time highs and traded above $76 per share. After four up weeks in a row V posted a loss last week. Technically it produced a bearish engulfing candlestick reversal pattern on its weekly chart. If shares do correct lower we want to take advantage of the pullback. Broken support near $70.00 should be support. Tonight we are suggesting a buy-the-dip trigger at $70.50.

- Suggested Positions -
AUG 24, 2015 - entry price on V @ 64.16, option @ 2.76
symbol: V170120C80 2017 JAN $80 call - current bid/ask $4.00/4.30

08/30/15 Remove the stop loss
08/24/15 triggered on gap down at $64.16, suggested entry was a buy-the-dip trigger at $70.50.
Option Format: symbol-year-month-day-call-strike

Current Target: To Be Determined
Current Stop loss: n/a
Play Entered on: 08/24/15
Originally listed on the Watch List: 08/09/15




Watch

Prepare To Buy The Dip

by James Brown

Click here to email James Brown


New Watch List Entries

CRM - Salesforce.com

RCL - Royal Caribbean Cruises

SBUX - Starbucks Corp.


Active Watch List Candidates

AAPL - Apple Inc.

AMBA - Ambarella Inc.

CLX - Clorox

DHI - DR Horton Inc

FB - Facebook Inc.

FIS - Fidelity National Info. Services

OA - Orbital ATK Inc.


Dropped Watch List Entries

LGF graduated to our active play list.



New Watch List Candidates:

Salesforce.com - CRM - close: 71.40

Company Info

If you're looking for a long-term bullish candidate CRM definitely fits. Founded in 1999 and headquartered in San Francisco the company has become a huge player in the cloud computing industry.

CRM is part of the technology sector. According to the company, "Salesforce is the world's #1 CRM company. Our industry-leading Customer Success Platform has become the world's leading enterprise cloud ecosystem. Industries and companies of all sizes can connect to their customers in a whole new way using the latest innovations in cloud, social, mobile and data science technologies with the Customer Success Platform."

CRM's revenues have been consistently growing in the mid +20% range the last few quarters. Their Q4 revenues were up +26%. Q1 revenues were +23%. The company's most recent quarter was announced August 20th. Analysts were expecting Q2 results of $0.17 a share on revenues of $1.6 billion. CRM beat both estimates with a profit of $0.19 as revenues grew +23.5% to $1.63 billion. Management raised their Q3 and full year 2016 revenue guidance.

Technically the stock is in a long-term up trend and the point & figure chart is forecasting an $85.00 target. Considering where we are on the calendar and the fact that the next three weeks tend to be the worst weeks of the year for stocks, I am suggesting a buy-the-dip trigger. Wait for CRM to dip to $65.25 and then buy calls.

Buy-the-dip trigger: $65.25, initial stop loss $59.00

BUY the 2017 Jan $75 call (CRM170120C75)

Option Format: symbol-year-month-day-call-strike

Chart of CRM:

Originally listed on the Watch List: 09/20/15


Royal Caribbean Cruises - RCL - close: 95.49

Company Info

If you are looking for stocks with relative strength then RCL fits the bill. Shares tagged new all-time highs last week and posted their third weekly gain in four weeks.

RCL is in the services sector. According to the company, "Royal Caribbean Cruises Ltd. is a global cruise vacation company that owns Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, Pullmantur and CDF Croisieres de France, as well as TUI Cruises through a 50 percent joint venture. Together, these six brands operate a combined total of 44 ships with an additional eight under construction contracts, and two under conditional agreements. They operate diverse itineraries around the world that call on approximately 480 destinations on all seven continents."

Barclays just upped their outlook on the cruise liners and believes the group is seeing improved strength in pricing. Meanwhile RCL has been cashing in on the growing trend of Chinese tourism. The recent change in ties between the U.S. and Cuba also represents a new opportunity for the cruise lines.

Technically RCL looks very bullish and the point & figure chart is forecasting at $121.00 target. Yet I don't want to buy it here. The market looks poised for a pullback. We will use a buy-the-dip trigger at $90.00. More conservative investors may want to hold out for a dip to $88.00 instead.

Buy-the-dip trigger: $90.00, no initial stop loss.

BUY the 2017 Jan $110 call (RCL170120C110)

Option Format: symbol-year-month-day-call-strike

Chart of RCL:

Originally listed on the Watch List: 09/20/15


Starbucks Corp. - SBUX - close: 56.84

Company Info

It's time to bring SBUX back to the LEAPStrader newsletter.

Here is an updated trade description on SBUX:

The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. SBUX broke out of that sideways funk after it reported earnings in January 2015.

Five-Year Plan

In late 2014 SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company recently launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

SBUX continues to serve up strong earnings and revenue growth too. The fourth quarter of 2014 saw a huge jump in SBUX gift cards. One out of every seven Americans received a SBUX gift card. SBUX has been reporting very strong overseas sales growth and consistently healthy same-store sales growth globally.

Shares were very steady performers for much of 2015 and then during the market's correction in late August the stock just collapsed. It was shocking to see SBUX erase six month's worth of gains in just a few days. Of course it bounced back almost as fast. Tonight I want to use SBUX's volatility to our advantage. If the market declines over the next couple of weeks SBUX might be unfairly punished. The $50-52 area should be support. We want to use a buy-the-dip trigger at $52.00.

Buy-the-dip trigger: $52.00, no initial stop loss.

BUY the 2017 Jan $60 call (SBUX170120C60)

Option Format: symbol-year-month-day-call-strike

Chart of SBUX:

Originally listed on the Watch List: 09/20/15


Active Watch List Candidates:



Apple Inc - AAPL - close: 113.45

Comments:
09/20/15: AAPL shares held up well on Friday but they still look vulnerable if the market continues to sink. I am not giving up on our buy-the-dip strategy.

Trade Description: September 13, 2015:
Love it or hate it AAPL always has Wall Street's attention. It has a cult-like following. The company's success has turned AAPL's stock into the biggest big cap in the U.S. markets with a current valuation of more than $651 billion.

The company is involved in multiple industries from hardware, software, and media but it's best known for its consumer electronics. The iPod helped perpetuate the digital music revolution. The iPhone, according to AAPL, is the best smartphone in the world. The iPad helped bring the tablet PC to the mass market. The company makes waves in every industry they touch with a very distinctive brand (iOS, iWork, iLife, iMessage, iCloud, iTunes, etc.) and they've done an amazing job at building an Apple-branded ecosystem. Now they're getting into the electronic payments business with Apple Pay.

Earnings growth has been significant as consumer snapped up the iPhone 6 and 6+. The company expects the iPhone to be a major driver as only 20-25% of their user base has upgraded. This past week AAPL held their annual event in September and introduced several upgrades.

AAPL has unveiled new stuff for their smartwatch, they introduced the iPhone 6s and 6s+, they introduced a new, larger iPad that's being called the iPad Pro. The company also introduced a new Apple TV system. They also unveiled a new leasing program for their iPhones.

Normally consumers buy iPhones through their wireless carrier. This past week AAPL announced a deal where consumers could lease their phone from Apple for $32.00 a month and get a free upgrade every year. For the iPhone fanatics it's probably a great deal.

The 2015 holiday shopping season will be here sooner than you expect and AAPL stands to benefit from their parade of new products announced last week. Yet I don't want to buy AAPL at current levels. Odds are good that stocks could sell-off following the FOMC decision this coming Thursday. We want to take advantage of any temporary weakness in shares of AAPL.

Tonight I am listing a buy-the-dip trigger at $101.00. No initial stop loss but investors might want to consider a stop under the August 24th low ($92.00).

We will re-evaluate our entry strategy next weekend after seeing how the market reacted to the Fed meeting.

Buy-the-dip trigger at $101.00
No stop, initially

BUY the 2017 Jan $120 call (AAPL170120C120) (estimated entry $8-to-$12)

Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 09/13/15


Ambarella, Inc. - AMBA - close: $71.46

Comments:
09/20/15: AMBA delivered a very healthy bounce last week. The stock traded above $75.00 on Thursday. That was a $10 gain from the prior Friday's close. This remains a volatile stock and AMBA lost -3.0% on Friday. Currently our strategy is unchanged. We have a buy-the-dip trigger at $61.00.

Remember - this is an aggressive trade. AMBA is a volatile stock. We want to start with small positions to limit risk.

Trade Description: September 8, 2015:
Shares of AMBA have come a long way from its IPO in October 2012 when the stock priced at $6.00 a share, below expectations. Even now, after a minus $55 drop from its 2015 highs the stock is still up +41% for the year.

AMBA is in the technology sector. They're considered part of the semiconductor and semiconductor equipment makers. The company was founded in 2004 and went public in 2012. That price was significantly below where AMBA was expected to price in the $9-11 range. Investor sentiment has definitely changed since then.

The company has grown from making broadcast-class encoders to making consumer and sports cameras, security cameras, and now automotive cameras. Their high-definition chips are being integrated into security IP cameras and wearable cameras. AMBA is also capturing part of a new market - cameras on consumer-level remote control drones.

The last two plus years have seen a strong performance in AMBA with the stock up more than +600% from its IPO price. AMBA has GoPro, Inc. (GPRO) to thank for part of that rally. When GPRO held its IPO last year (2014) it drew attention to AMBA who makes the chips for the video processing in GPRO's cameras. Shares of GPRO saw a huge decline 2014 highs but shares of AMBA have continued to rally.

Part of GPRO's trouble is competition from a large Chinese rival - Xiaomi. GPRO is currently seen as best of breed in the action camera market but it may not hold that spot forever. Xiaomi is selling similar cameras at a significant discount to GPRO and both cameras use AMBA's technology. Both camera makers have different models. GPRO's top of the line still has better components than Xiaomi's - at least for now. The real winner is AMBA since they supply to both companies. Multiple analysts have commented on AMBA's relationship with Xiaomi and believe it will bear significant fruit in the future.

The company has seen tremendous earnings and revenue growth over the last couple of years. Their most recent earnings report was September 1st, 2015. Revenues were up +79% from a year ago to $84.2 million, which was above expectations. The stock sank because management offered soft guidance. When a high-flying, high-valuation stock like AMBA starts to see revenues slow down their valuations collapse.

After a -42% decline from its highs AMBA is probably still has a rich valuation and that's the biggest complaint about the stock price. Shares will likely maintain a high P/E for a long-time as growth will continue. The pullback is most likely a temporary slowdown.

While we are longer-term bullish on AMBA I suspect the sell-off isn't over yet. We want to take advantage of any volatility.

Momentum stocks like AMBA climb and climb and climb and then suddenly reverse. When momentum stocks reverse lower they often fall farther and further than we might normally expect. Today (Sept. 8th) the broader market delivered a widespread rally with the major indices up +2.5%. Yet AMBA lost ground, losing -0.5%. If shares breakdown under short-term support at $70.00 the next support level is probably $60.00.

Tonight I am listing AMBA as an aggressive, higher-risk trade. We want to use a buy-the-dip trigger at $62.00. Options are expensive because AMBA is so volatile. I suggest small positions to limit risk. We are not listing a stop loss at this time and will and one as the trade progresses.

I am listing the 2016 January calls. I'd like to buy the 2017 Januarys but they are very expensive.

Buy-the-dip at $61.00 *small positions*

BUY the 2016 January $70 call (AMBA160115C70)

09/13/15 adjust the buy-the-dip trigger to $61.00
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 09/08/15


The Clorox Co. - CLX - close: $113.46

Comments:
09/20/15: CLX displayed significant relative strength last week and almost met our entry point requirements. Shares rallied to $115.50 on Thursday afternoon and closed at $114.08 on Thursday. Our suggested entry trigger is a close above $114.25 so we could see an entry point soon if CLX continues to climb.

Trade Description: September 8, 2015:
Clorox is not just a bleach and cleaners company. They also make food and personal care items. Actually they make a lot more.

CLX is in the consumer goods sector. According to the company, "The Clorox Company is a leading multinational manufacturer and marketer of consumer and professional products with about 7,700 employees worldwide and fiscal year 2014 sales of $5.5 billion. Clorox markets some of the most trusted and recognized consumer brand names, including its namesake bleach and cleaning products; Pine-Sol cleaners; Liquid Plumr clog removers; Poett home care products; Fresh Step cat litter; Glad bags, wraps and containers; Kingsford charcoal; Hidden Valley and KC Masterpiece dressings and sauces; Brita water-filtration products and Burt's Bees natural personal care products. The company also markets brands for professional services, including Clorox Healthcare, HealthLink, Aplicare and Dispatch infection control products for the healthcare industry. More than 80 percent of the company's brands hold the No. 1 or No. 2 market share positions in their categories."

Earnings have been pretty strong when you consider the negative impact of currency fluctuations on a big multi-national like CLX. On February 4th CLX announced its Q2 report and beat Wall Street estimates on both the top and bottom line. Management raised their 2015 guidance and their revenue guidance.

Their Q3 report, on May 1st, was a little bit softer. Earnings of $1.08 per share missed estimates by 2 cents. Revenues were up +2.6% to $1.4 billion but that was above expectations. Management raised their outlook again for their full year 2015 guidance.

Their most recent report was CLX's Q4 results on August 3rd. Earnings of $1.44 per share was seven cents above estimates. Revenues were up +4.0% to $1.56 billion, also better than expected. Management issued soft guidance, below Wall Street estimates, but the stock rallied anyway.

CLX has a strong, long-term up trend. Investors could seek safety in stocks like CLX if the global economy continues to struggle.

The stock market's correction saw CLX plunged back toward technical support near its 200-dma. Now the stock has been consolidating sideways in the $108-112 zone. I'd like to see CLX fill the gap ($112-114) before we launch positions. Therefore the plan is to wait for CLX to close above $114.25 and then buy calls the next morning.

This is a long-term trade. We're using the 2017 calls.

Breakout trigger: Wait for a close above $114.25
Then buy calls the next morning.

BUY the 2017 Jan. $125 call (CLX170120C125)

Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 09/08/15


DR Horton Inc. - DHI - close: 31.61

Comments:
09/20/15: DHI managed to tag new multi-year highs on Thursday before paring its gains. The trend is still up for DHI but I'm hesitant to chase it considering the next three weeks tend to be rough for the U.S. stock market. Let's leave our buy-the-dip trigger at $28.50 for now and re-evaluate next weekend. I am open minded to a potential entry if DHI can close above $32.50.

Trade Description: September 13, 2015:
Believe it or not but homebuilders have been some of the market's better performers this year. The group is up about 15% year to date. DHI has outperformed its peers with a +24% gain in 2015. The stock is poised to breakout past resistance near $32.00 and hit new multi-year highs.

If the Federal Reserve does announce a rate hike on Thursday it could spark a temporary sell-off in the homebuilders. I want to be ready to buy the dip in DHI. The stock should have support in the $27.00-28.00 area. Tonight I am suggesting a buy-the-dip trigger at $28.50 and we'll list a stop loss at $25.75.

Buy-the-dip trigger at $28.50
Initial stop loss at $25.75

BUY the 2017 Jan $35 call (DHI170120C35)

Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 09/13/15


Facebook, Inc. - FB - close: 94.40

Comments:
09/20/15: FB has continued to show relative strength. Shares powered their way to new four-week highs and resisted the market's widespread decline on Friday. I still don't want to chase it at current levels.

Tonight we are adjusting the buy-the-dip entry trigger from $85.00 to $86.50.

Trade Description: September 13, 2015:
We are bring FB back to the LEAPStrader newsletter. Cross your fingers and hope for a big dip!

Facebook probably needs no introduction. It's the largest social media platform on the planet. The company is quickly approaching 1.5 billion monthly active users. A couple of weeks ago they hit a new milestone - one billion people logged into Facebook in a single day.

The company continues to grow. In addition to their Facebook social media powerhouse they also own Facebook Messenger, WhatsApp, and Instagram. Their WhatsApp product is the largest messaging service on the planet with over 900 million monthly active users. Meanwhile FB's photo-sharing Instagram property has more than 300 million active users. The company has been ramping up their advertising efforts to slowly monetize Instagram. FYI: FB also owns Occulus Rift, the virtual reality company, but it's probably a few more years before VR goes mainstream.

Shares of FB have been incredibly volatile over the last few weeks. After surging to all-time highs in July following its earnings report the stock crashed in August. The market's correction lower sparked some extreme moves in FB with a plunge down to $72.00 on August 24th. This past week FB displayed relative strength and has rallied back above its 50-dma. However, I do not want to chase it here.

FB has already demonstrated that it can be volatile when the market sees big moves. If stocks sell-off on the Fed's decision this week we want to be ready to buy it on weakness. I view the $80-85 region as likely support. Tonight I am suggesting a buy-the-dip trigger at $85.00. If triggered we'll start this play with a stop loss at $79.75.

We will re-evaluate our entry strategy next weekend after seeing how the market reacted to the Fed meeting.

Buy-the-dip trigger at $86.50
Initial stop loss at $79.75

BUY the 2017 Jan $100 call (FB170120C100)

09/20/15 adjust the buy-the-dip trigger from $85.00 to $86.50
Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 09/13/15


Fidelity National Info. Svcs. - FIS - close: $68.18

Comments:
09/20/15: FIS is starting to worry me. The rally on Thursday failed at short-term resistance in the $70.50 area. Friday's drop broke the short-term trend of higher lows.

Let's see how FIS performs this week. If shares find support near $66 and bounce then we might re-evaluate our entry strategy. At the moment our suggested entry point is a close above $71.00.

Trade Description: September 8, 2015:
We are adding FIS as a relative strength trade. The stock has been marching higher for years. Shares are outpacing the broader market this year with a +9.0% gain year to date.

FIS is in the technology sector. According to the company, "FIS is a global leader in banking and payments technology as well as consulting and outsourcing solutions. With a long history deeply rooted in the financial services sector, FIS serves more than 14,000 institutions in over 130 countries. Headquartered in Jacksonville, Fla., FIS employs more than 42,000 people worldwide and holds leadership positions in payment processing and banking solutions. Providing software, services and outsourcing of the technology that empowers the financial industry, FIS is a Fortune 500 company and is a member of Standard & Poor’s 500 Index."

FIS just recently announced it was acquiring financial software maker SunGard Data Systems for $9.1 billion in cash and stock. SunGard was about to go public and FIS gobbled them up. The combined company will have $9.2 billion in annual revenues and over 55,000 employees.

The big spike higher on FIS' daily chart was the market's reaction to this acquisition news. Shares of FIS filled the gap during the market's correction lower. Now traders are back to buying FIS. The point & figure chart is bullish and forecasting at $92.00 target.

Tonight I am suggesting we wait for FIS to close above $71.00 and then buy calls the next morning. We will start with a stop loss at $64.75.

Breakout trigger: Wait for a close above $71.00
Then buy calls the next morning with a stop loss at $64.75

BUY the 2016 Jan. $75 call (FIS160115C75)

Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 09/08/15


Orbital ATK, Inc. - OA - close: $75.63

Comments:
09/20/15: OA might be in trouble. Shares were showing relative weakness before the market's widespread drop on Friday. If shares close below short-term support in the $73-74 area then we'll probably drop it as a candidate. Currently our suggested entry point is a close in the $81.00-83.00 range.

Trade Description: September 8, 2015:
If you read the news it seems like the world is an increasingly dangerous place to live. Defense companies like OA are seeing their business strengthen.

OA is part of the industrial goods sector. According to the company, "Orbital ATK is a global leader in aerospace and defense technologies. The company designs, builds and delivers space, defense and aviation systems for customers around the world, both as a prime contractor and merchant supplier. Its main products include launch vehicles and related propulsion systems; missile products, subsystems and defense electronics; precision weapons, armament systems and ammunition; satellites and associated space components and services; and advanced aerospace structures. Headquartered in Dulles, Virginia, Orbital ATK employs more than 12,000 people in 18 states across the United States and in several international locations."

Their most recent earnings report was August 6th. OA reported its Q2 results of $1.28 per share. That is +16% improvement from a year ago and 26 cents above estimates. Revenues were up +7% to $1.13 billion, also better than expected.

David W. Thompson, Orbital ATK's President and Chief Executive Officer, commented on his company's results, "Orbital ATK reported excellent second quarter financial results characterized by better-than-expected revenue and very strong earnings. These results benefited from outstanding new orders, as well as continued solid operational execution on our major programs. As a result, we are increasing the company's outlook for sales and earnings this year and expanding our previously-announced capital deployment program as well.

Management raised their full year 2016 earnings to $4.60-4.80 a share and forecasted revenues in the $4.425-4.50 billion range. This is above Wall Street estimates of $4.51 a share on revenues of $4.41 billion.

Argus upgraded the stock and boosted their OA price target to $95.00. A Goldman Sachs analyst also upgraded the stock. Goldman said OA has "multiple unique exposures to drive faster than average 3-year growth."

The sell-off during the market's crash on August 24th was ridiculous. OA plunged from $75 to $56 in the blink of an eye and has since recovered. Moves like that are more than a little unnerving. Investors may want to use small positions to limit risk. The August peak was about $81.00. I am suggesting we wait for OA to close in the $81.00-83.00 range and then buy calls the next morning. No initial stop on this trade.

Technically this isn't a LEAPS trade. OA doesn't have LEAPS. The farthest options available is the 2016 Februarys.

Breakout trigger: Wait for OA to close in the $81.00-83.00 range
Then buy calls.

BUY the 2016 Feb. $85 call (OA160219C85)

Option Format: symbol-year-month-day-call-strike

Originally listed on the Watch List: 09/08/15